UK Pensions Regulator 'unlikely' to be given power to force mergers

UK - Bill Galvin, chief executive of the UK’s Pensions Regulator, has said he doubts the organisation will be granted powers to merge underperforming or costly defined contribution (DC) schemes with larger funds to achieve better economies of scale.

He said such powers were unlikely to be granted to the watchdog, and that the responsibility for selecting a good occupational pension fund rested with employers.

Speaking at a conference organised by the Society of Pension Consultants in London, Galvin said: “We propose, and we will be consulting on this later in the year, a code of practice for trust-based schemes that look to provide auto-enrolment.”

He told attendees that, as auto-enrolment began in earnest, employers would be responsible for selecting a DC scheme that could offer scale and had sufficient clout with its buying power.

Citing statistics from the Australian Prudential Regulation Authority, responsible for regulating the country’s superannuation funds, Galvin noted that the larger not-for-profit funds in Australia were able not only to outperform the industry average, but offer increased performance with less volatility.

He said that an “element of scale” was needed within the pensions system in the UK, echoing similar comments by the National Association of Pension Funds (NAPF).

The lobby group’s long-standing call for large-scale institutional pension organisations has more recently been championed by chairman Mark Hyde Harrison, who at a conference earlier this year argued in favour of the Pensions Regulator being granted powers to merge underperforming DC funds.

Similar powers were recently introduced in Australia, and mergers of funds are commonplace in the Netherlands and Denmark in an effort to achieve greater scale.

Asked whether he could see the Pensions Regulator granted powers to merge funds, Galvin said: “That is a much more interventionist approach than is traditionally the case in the UK.”

However, he acknowledged that this might change if employers “had not responded to the challenge” and placed its workforce in uncompetitive funds.